A list of top dividend paying stocks is available at the bottom of this post. You can also read about interesting things about dividend yield formula here.

Dividend analysis of TCS,I think you will like it as well. Before we look into the list of stocks, that let’s dig deeper into dividends.

There are less takers of top dividend paying stocks in India. Do you know why? Because people like “capital appreciation” more. Why? Because its yield is generally higher.

But does that make “dividend” less worthy? Not at all. What comes as a package with capital appreciation is “uncertainty”. Predicting capital appreciation is harder. But dividend income is more rational and predictable.

Dividend’s yield may be low, but still it can be preferred. How? Some find it hard to believe that, there are investors who invest in stocks just for dividends. Why they can’t believe?

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Because of the magnitude of difference, in numbers. What are the numbers?

Capital Appreciation: Stock’s yield can be like 12% p.a.
Dividend income: Stocks yield can be like 2-3% p.a.
If it is so, why there are people who anyways love dividend income?

This is what we will discuss in this article.

“Dividends” may not be as flashy as “capital appreciation”, but it still has its own place.

In this article I will explain what makes dividend so special, irrespective of its limitations.

Top Dividend Paying Stocks in India -1

#1. Dividend focused investing is also necessary…Yield of dividend income can be low.

But investors who invest in them does it with a different objective.

Yes, people who buy dividend paying stocks are different. Why?

The reason is simple:

Dividend income is more predictable. Capital appreciation is less certain.

High growth rate is a priority for majority. But expert investors prefer to have a balanced portfolio.

Portfolio focusing only on capital appreciation may pose too high risk.

Inclusion of dividend paying stocks has a balancing effect on ones investment portfolio.

#2. Dividends are best form of passive income…Expert investors love passive income. Dividend is one of the best form of passive income.

How to generate dividend income? By buying dividend paying stocks at right price.

What makes dividends, the best passive income? Number one reason is, they originate from equity.

What makes equity-factor so special here? Equity yield can improve with time.

A stock which is yielding 0.5% at the time of purchase, can yield much higher with passage of time.

Let me give you two examples:

TCS:
Suppose a person bought shares of TCS in year Mar’09. Details are as below:

Share Price (2009): Rs.132/share.
No of shares bought: 10 nos.
Cost paid to buy TCS: Rs.1,320.
Dividend paid in 2009: Rs.14/share.
Total dividend income in 2009: Rs.140.
Dividend yield in 2009: 10.6%.
Suppose this person held on to his shares till year 2018.

What will be his dividend yield as on Mar’18?

[Note: Bonus shares 1:1 was also issued to all shareholders between Mar’09 & Mar’18]

Share Price (2009): Rs.239/share.
No of shares bought: 10 nos.
Cost paid to buy HUL: Rs.2,390.
Dividend paid in 2009: Rs.7.5/share.
Total dividend income in 2009: Rs.75.
Dividend yield in 2009: 3.15%.
Suppose this person held on to HUL shares till year 2018. What will be his dividend yield as on Mar’18?

[Note: No bonus shares were issued to shareholders between Mar’09 & Mar’18]

The above chart is showing a trend of dividend payout ratio for TCS and HUL.

What is the trend?

HUL: If HUL will follow this trend, most likely it will give 80% of its PAT as dividend to its shareholders in the next few years.

So if we can extrapolate PAT of HUL for next 3-5 years, we will approximately know what can be a potential “dividend income” out of HUL.

Similarly, let’s analyse the trend of TCS.

TCS: If TCS will follow this trend, most likely it will give 35% of its PAT as dividend to its shareholders in the next few years.

Though it will be only a guess work, but generally stable-companies try to mimic their past behaviours in normal times.

A company which has a habit of paying 30% of their net profit in dividends, will continue to do the same in times to come.

So this is first part of the planning process.

Keep a note of how much percentage of net profits companies pay in form of dividends.

The second part of planning is to keep a track of market price of its stock.

Suppose at a market price of Rs.100, a stock is yielding dividend of 2%. If the price falls to Rs.80, the same stock will show dividend yield of 2.5%.

When price of stocks fall, its dividend yield becomes more attractive.

During stock market crash, price of stocks fall by huge margins.

During this time, investors can plan to accumulate good dividend paying stocks.

#8. Consistent dividend payment is a great value indicator. How?Experts considers high dividend yield as a strong value indicator.

If a quality stock is yielding high dividend, it is considered as undervalued.

We know that, Improving sales and profit figures are one of the strongest fundamental indicators of quality stocks.

High profitability and low debt dependency is just like an icing on cake.

How much dividend a company pays to its shareholders gives a great hint about how the company is managing its sales, profits, and debt.

Companies which shares its profits consistently (dividends) are confident companies. This confidence comes with predictability of future earnings.

A good company, will never compromise its short term liquidity to please shareholders.

Maintaining liquidity to pay its current liabilities is a top priority for any company.

So if a company is paying dividends it means that liquidity is in full control.

A company which is paying regular dividends must have sufficient liquidity to take care of its current liability.

#9. Different ways to earn dividends in India…
In India there are only few avenues to earn dividends.

One of the well-known way is to buy dividend paying stocks.

Another way is to buy dividend paying mutual funds.

In Europe and America dividend paying exchange traded funds (ETF’s) are also available.

At the moment India do not have such ETF’s.

People can buy stocks using online trading account.

These days mutual funds can also be purchased using online trading platforms.

If one does not have it, then the easiest option is to call your bank.

They will send investment agents who can arrange to buy dividend focused mutual funds for you.

#10. Limitations of dividend…
If dividend paying stock are so good, why everyone do not only buy them?

Enough of only good things about dividend paying stocks. Here are some limitations of dividend focused investing.

I feel, being aware of these limitations will further enhance the benefits of dividend focused investing for the investors…

#10.1. High Dividend Yield is not enough…
Some might think that high dividend yielding stocks are good.

But “yield” is not a sufficient indicator to identify good dividend paying stocks.

Stocks paying high dividend one year, and nothing the following year, is also not good.

Consistent dividend payment is what is more interesting.

It may happen that a stock is yielding 8% dividend. But the following year the yield falls to as low as 0.5%.

This is what happens for majority companies.

For majority stocks dividend yield is not more than 0.5-1%.

Investors target should be to buy stocks which pays consistent dividends. How to do it?

Buy stocks of good companies…like TCS and HUL…the list is provided below

#10.2. Beware of Fluctuating dividends and weak fundamentals
Fluctuating dividend and weak fundamentals are the main hurdles of dividend focused investing.

Couple of years back Strides Arcolab was yielding dividend close to 33% per annum.

In Mar’14 it paid: Rs.505/share as dividend.
In Mar’15 it paid: Rs.108/share as dividend.
But after that, it dividend payment dipped to bare minimum:

In Mar’15 it paid: Rs.4.0/share.
In Mar’16 it paid: Rs.4.5/share.
In Mar’17 it paid: Rs.2.0/share.
In Mar’18 it paid: Rs.2.0/share.
Strides Arcolab is not a bad company. But post Mar’15, its profits has gone down.

People who bought this stock then, for dividend yield, must be feeling disappointed today.

Hence, it is important to look at dividend yield, but in conjunction with other fundamentals like sales, profit, EPS, dividend payout %, etc.